Scottish Pubs Code Adjudicator (Duty to Publish Certain Information) Regulations 2024 and Scottish Pubs Code Adjudicator (Miscellaneous Listings) Order 2024: Business and Regulatory Impact Assessment

Purpose and intended effect

Background

The Tied Pubs (Scotland) Act 2021 (“the Act”) received Royal Assent in May 2021. The purpose of the Act is to regulate the relationship between tied pub landlords (pub-owning businesses) and tenants through the introduction of a statutory Scottish Pubs Code and the appointment of a Scottish Pubs Code Adjudicator. The role of the Adjudicator is to oversee and enforce the code.

Tied pubs are owned by a pub-owning business and leased to a tenant. Tenants must buy some or all of their products and services from the pub-owning business or someone nominated by the pub-owning business ("the tie"). Ties can include, for example, beer and spirits, and tied products and services are often charged at a higher cost than on the open market. In return, tenants sometimes pay lower rent than the market rate and receive other support from the pub-owning business.

Concerns about fairness in this relationship led to the UK Government creating a Pubs Code and a Pubs Code Adjudicator for tied pubs in England and Wales in 2016. The legislation in England and Wales applies to pub-owning businesses owning 500 tied pubs or more.

Similar concerns about fairness were raised in Scotland despite a Scottish voluntary code of practice being in place and signed up to by a majority of pub-owning businesses. In 2020, the Tied Pubs (Scotland) Bill (“the Bill”) was introduced by Neil Bibby MSP as a Member’s Bill.

The Scottish Government agreed to support the Tied Pubs (Scotland) Bill in December 2020. This was in response to the evidence put forward at Stage 1 of the Bill, the UK Government’s review of the Pubs Code and Pubs Code Adjudicator in England and Wales and the likelihood that legislation would be required at some point to implement the Economy, Jobs and Fair Work Committee’s recommendations on the Bill. The Tied Pubs (Scotland) Act 2021 was passed unanimously by the Scottish Parliament on 23 March 2021 and became an Act on 5 May 2021.

The Act covers all tied pubs and pub-owning businesses in Scotland, reflecting the smaller scale of the tied pubs sector in Scotland compared to England and Wales. As of May 2023, it is estimated there were just under 700 tied pubs^[1] in Scotland and at least 10 pub-owning businesses^[2]. Based on estimates and industry data, tied pubs represent 16% of Scotland’s total licensed premises^[3].

The Adjudicator will be funded initially through a loan by the Scottish Government and in the longer-term it will be funded by a levy on pub-owning businesses.

Implementation of the Act was due to be completed by 6 May 2023, but this was delayed because of legal challenge to the Act brought by some pub-owning businesses by way of judicial review. The challenge was on the basis that the Act was not within the legislative competence of the Scottish Parliament. Alongside the legal challenge, the pub-owning business successfully sought an interim interdict order preventing the Scottish Ministers from making or laying any part of the Act. Lord Harrower’s Opinion was published on 9 December 2022 and found that the Act was within competence. This judgement was subject to appeal, which was refused by the Inner House of the Court of Session on 7 July 2023. A further request to appeal to the UK Supreme Court was also refused by the Inner House on 14 November 2023. On the 8 March 2024, the UK Supreme Court refused a request for permission to appeal, thereby allowing these regulations to be laid before the Scottish Parliament.

This Business and Regulatory Impact Assessment covers the Scottish Pubs Code Adjudicator (Duty to Publish Certain Information) Regulations 2024 and the Scottish Pubs Code Adjudicator (Miscellaneous Listings) Order 2024.

Objective

The Scottish Pubs Code Adjudicator is a new statutory body established by the Tied Pubs (Scotland) Act 2021. The Adjudicator will be appointed following a parliamentary resolution.

The Adjudicator’s powers include:

• arbitration in disputes between the pub-owning business and tenants;
• setting criteria for a rent assessor or appointing a rent assessor for market rent only negotiations;
• publishing an investigation policy;
• investigating non-compliance with the code;
• giving advice and guidance on the code and carrying out enforcement actions (which include financial penalties).

The role of the Adjudicator is to raise awareness of the code and the Adjudicator’s role amongst tied tenants and the pub-owning businesses in scope of the code.

The purpose of the Scottish Pubs Code Adjudicator (Duty to Publish Certain Information) Regulations 2024 is to make the Adjudicator subject to a duty to publish information under the Public Services Reform (Scotland) Act 2010. The SSI adds the Adjudicator to the public bodies listed in schedule 8 of the Public Services Reform (Scotland) Act 2010 in time for the regulatory regime coming into force on 7 October 2024. Inclusion in schedule 8 creates a duty on organisations to publish an annual statement on expenditure incurred on public relations, hospitality and entertainment, overseas travel and external consultancy, as well as any payments over £25,000 (other than service-related payments to members/staff) and the number of members/staff who received more than £150,000 in remuneration during the financial year. It will also require the Adjudicator to publish information on what steps they have taken to promote and increase sustainable growth and to improve efficiency, effectiveness and economy.

The purpose of the Scottish Pubs Code Adjudicator (Miscellaneous Listings) Order 2024 is to make the Adjudicator subject to duties on records management and on freedom of information similar to other public bodies. The Order makes the Adjudicator subject to the freedom of information requirements set out in the Freedom of Information (Scotland) Act 2002 and places a duty on the Adjudicator to comply with the records management requirements of the Public Records (Scotland) Act 2011. It also allows for Scottish Ministers to improve the Adjudicator’s efficiency, effectiveness and economy under the Public Services Reform (Scotland) Act 2010.

The SSIs will support delivery of the Tied Pubs (Scotland) Act 2021. They will help ensure that, in line with other public bodies, the Adjudicator is transparent, practises good governance and record keeping, and makes the best use of their financial resources. The reason for having two SSIs is that some of the changes to primary legislation need to be made by order and some need to be made by regulations.

Rationale for Government Intervention

The Policy Memorandum for the Bill stated that with the establishment of a tied pubs code and adjudicator for England and Wales, tied pub tenants in Scotland did not have equivalent statutory rights and protections to their counterparts in England and Wales. The Memorandum stated that this also meant that pub-owning businesses which operated in Scotland as well as England and Wales were operating in very different statutory environments north and south of the border. The Bill would therefore help to ensure that tied pub tenants in Scotland were no worse off than their colleagues in England and Wales.

During the final debate on the Bill on 23 March 2021, the Minister for Business, Fair Work and Skills noted that the legislation would promote fair and equitable treatment in commercial agreements and would rebalance the relationship between pub-owning businesses and tied pub tenants.

The Minister had listened carefully to views and concerns from across the industry. He had heard about the support provided to many tenants by their pub-owning businesses, especially during Covid, which showed the value of the tied pubs model. Tied pubs also provided a low-cost entry point for people looking to take their first steps into business. However, the Minister noted that the picture across the sector was not uniform and said, “I have also heard from some tenants that they have not had that level of support and believe that change is required.”^[4]

The Minister confirmed that “whether we would support the Bill’s progress was a balanced decision”^[5] and Ministers had “sought to ensure that the Bill is fair and balanced for both landlords and tenants”^[6]. He wanted “to preserve the benefits of the tied pubs system” but also “to ensure that there is a better balance in landlord-tenant relationships, and a proportionate approach”^[7]. He said that he wanted “a level playing field for tenants and landlords. I want tenants to be treated fairly and landlords to be able to see a return for their investment”^[8].

The Act went further than the legislation in England and Wales by introducing the right for all tenants to request an Market Rent Only (MRO) lease at any time, except in specified circumstances, to make the MRO process less complex. The Act assumes that an MRO lease will be made through a deed of variation, rather than through a new lease, unless the tenant consents to a new lease. The other key difference with England and Wales is that the Act requires the Scottish Pubs Code to include a guest beer agreement, which is the ability for a tenant to request a beer of their choice from any supplier. There is no guest beer agreement within the English and Welsh code. Neil Bibby MSP, in evidence to the Economy, Energy and Fair Work Committee 01 September 2020, said that the “guest beer right is about giving publicans the opportunity to stock more beers and to stock the beers that they want to stock. It will also allow consumers the opportunity to demand more choice at the bar.”^[9] . Allowing tenants more autonomy could potentially increase profits for certain tenants and potentially support smaller brewers, bolstering the wider community of tied pubs.

Section 2 of the Act establishes the office of the Scottish Pubs Code Adjudicator and Schedule 2 makes provision about that office. Ahead of the regulatory regime being established, policy officials have analysed the reporting requirements for public bodies and identified various pieces of primary legislation that the Adjudicator should be subject to as part of good governance of public bodies.

The regulations that are the subject of this impact assessment will support the implementation of the Act and contribute to our economic national outcomes, particularly towards the vision to “ensure the benefits of economic growth, wealth and opportunities are fairly shared”^[10].

The Adjudicator is a public appointment, and they will be funded initially through a loan by the Scottish Government and in the longer-term by a levy on pub-owning businesses. Ministers have a responsibility to ensure good governance, transparency and financial propriety. The regulations and order will help to support these aims.